Quarterly report [Sections 13 or 15(d)]

REPORTABLE SEGMENTS

v3.25.2
REPORTABLE SEGMENTS
 6 Months Ended
Jun. 30, 2025
Segment Reporting [Abstract]  
REPORTABLE SEGMENTS
NOTE 15. REPORTABLE SEGMENTS
Reportable segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.
Our reportable segments consist of Engine, Components, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products, maintaining relationships with various OEMs throughout the world and providing selected sales and aftermarket support for our Accelera business. The Power Systems segment is an integrated power provider, which designs, manufactures and sells standby and prime power generators, engines (16 liters and larger) for standby and prime power generator sets and industrial applications (including mining, oil and gas, marine, rail and defense), alternators and other power components. The Accelera segment designs, manufactures, sells and supports electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies as well as hydrogen production technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of electrified power systems and related components and subsystems and our electrolyzers for hydrogen production. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.
Our CODM uses segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the basis for the CODM to evaluate the performance of each of our reportable segments. EBITDA provides our CODM with a full picture of the profitability of a segment to drive decisions and resource allocation. EBITDA is used as the key profitability measure when we set our annual operating plan, is the metric with which our CODM assesses results and is a key component of our annual variable compensation plans. Segment amounts exclude certain expenses not specifically identifiable to segments.
The accounting policies of our reportable segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as IT, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate-owned life insurance and the gain and certain costs related to the divestiture of Atmus. See NOTE 14, "ATMUS DIVESTITURE," for additional information. EBITDA may not be consistent with measures used by other companies.
Summarized financial information regarding our reportable segments for the three and six months ended June 30, 2025 and 2024 is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
Three months ended June 30, 2025  
External sales $ 2,162  $ 2,295  $ 3,034  $ 1,054  $ 98  $ 8,643 
Intersegment sales 737  410  7  835  7  1,996 
Total sales 2,899  2,705  3,041  1,889  105  10,639 
Cost of goods sold (excluding warranty expenses) 2,168  2,161  2,419  1,290  132  8,170 
Warranty expenses 119  28  5  26  12  190 
Selling expenses 61  40  154  41  7  303 
Administrative expenses 146  121  89  106  14  476 
Research, development and engineering expenses 151  77  14  69  46  357 
Equity, royalty and interest income (loss) from investees 60  10  26  27  (5) 118 
Other income (expense) (1)
18  (18) 27  11  (2) 36 
Add back: Depreciation and amortization (2)
68  127  32  35  13  275 
Segment EBITDA $ 400  $ 397  $ 445  $ 430  $ (100) $ 1,572 
Interest income (3)
$ 8  $ 10  $ 7  $ 4  $ 1  $ 30 
Three months ended June 30, 2024    
External sales $ 2,468  $ 2,518  $ 2,821  $ 888  $ 101  $ 8,796 
Intersegment sales 683  464  8  701  10  1,866 
Total sales 3,151  2,982  2,829  1,589  111  10,662 
Cost of goods sold (excluding warranty expenses) 2,327  2,369  2,301  1,107  144  8,248 
Warranty expenses 122  66  5  24  6  223 
Selling expenses 56  43  157  47  7  310 
Administrative expenses 147  135  107  105  19  513 
Research, development and engineering expenses 167  81  14  63  54  379 
Equity, royalty and interest income (loss) from investees 48  13  24  26  (8) 103 
Other income (expense) (1)
4  (16) 15  —  (5) (2)
Add back: Depreciation and amortization (2)
61  121  30  32  15  259 
Segment EBITDA $ 445  $ 406  $ 314  $ 301  $ (117) $ 1,349 
Interest income (3)
$ 7  $ 9  $ 11  $ 3  $ —  $ 30 
In millions Engine Components Distribution Power Systems Accelera Total Segments
Six months ended June 30, 2025
External sales $ 4,202  $ 4,565  $ 5,936  $ 1,926  $ 188  $ 16,817 
Intersegment sales 1,468  810  12  1,612  20  3,922 
Total sales 5,670  5,375  5,948  3,538  208  20,739 
Cost of goods sold (excluding warranty expenses) 4,204  4,300  4,751  2,380  253  15,888 
Warranty expenses 204  54  11  58  20  347 
Selling expenses 120  81  311  87  14  613 
Administrative expenses 284  240  180  206  27  937 
Research, development and engineering expenses 306  152  28  126  89  701 
Equity, royalty and interest income (loss) from investees 133  17  54  56  (11) 249 
Other income (expense) (1)
38  (35) 36  14  (5) 48 
Add back: Depreciation and amortization (2)
135  249  64  68  25  541 
Segment EBITDA $ 858  $ 779  $ 821  $ 819  $ (186) $ 3,091 
Interest income (3)
$ 18  $ 17  $ 12  $ 8  $ 1  $ 56 
Six months ended June 30, 2024
External sales $ 4,708  $ 5,360  $ 5,350  $ 1,596  $ 185  $ 17,199 
Intersegment sales 1,371  954  14  1,382  19  3,740 
Total sales 6,079  6,314  5,364  2,978  204  20,939 
Cost of goods sold (excluding warranty expenses) 4,517  5,005  4,347  2,104  264  16,237 
Warranty expenses 227  128  10  39  14  418 
Selling expenses 108  98  310  87  15  618 
Administrative expenses 291  293  198  204  32  1,018 
Research, development and engineering expenses 321  165  28  123  109  746 
Equity, royalty and interest income (loss) from investees 105  39  48  45  (11) 226 
Other income (expense) (1)
20  (31) 28  6  (6) 17 
Add back: Depreciation and amortization (2)
119  246  61  66  29  521 
Segment EBITDA $ 859  $ 879 
(4)
 $ 608  $ 538  $ (218) $ 2,666 
Interest income (3)
$ 14  $ 17  $ 22  $ 6  $ —  $ 59 
(1) Other income (expense) includes other operating expense, net and other income, net from our Condensed Consolidated Statements of Net Income.
(2) Depreciation and amortization are not considered significant segment expenses but are presented here to reconcile to EBITDA, the measure used by our CODM. Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in our Condensed Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs was $7 million and $7 million for the six months ended June 30, 2025 and June 30, 2024, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(3) Interest income is a component of other income (expense).
(4) Included $21 million of costs associated with the divestiture of Atmus for the six months ended June 30, 2024. See NOTE 14, "ATMUS DIVESTITURE," for additional information.
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:
Three months ended Six months ended
  June 30, June 30,
In millions 2025 2024 2025 2024
TOTAL SEGMENT EBITDA $ 1,572  $ 1,349  $ 3,091  $ 2,666 
Intersegment eliminations and other (1)
15  (4) (44) 1,251 
(2)
Less:
Interest expense 87  109  164  198 
Depreciation and amortization 275  259  541  521 
INCOME BEFORE INCOME TAXES $ 1,225  $ 977  $ 2,342  $ 3,198 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included a $1.3 billion gain related the divestiture of Atmus and $14 million of costs associated with the divestiture of Atmus (included in corporate expenses) for the six months ended June 30, 2024. See NOTE 14, "ATMUS DIVESTITURE," for additional information.